Why do supply and demand control market prices, and should you use them in trading?

The price of stocks, crypto, or any assets does not fluctuate randomly. Every price change has a reason behind it. And if you understand the “buying pressure” and “selling pressure” that drive the market, you will be able to predict price directions more accurately. That is the core of learning about demand (Demand) and supply (Supply).

What is demand and why is it important to price

Demand refers to the quantity of goods or assets that people want to buy at various price levels. In other words, it is the buying force in the market.

Imagine: if a stock is good news and many investors want to buy it for returns, this demand overflows. If the number of buyers exceeds the sellers, the price will go up. That is the power of demand.

Basic law of demand: When the price drops, the desire to buy increases. Conversely, when the price rises, the desire to buy decreases.

Factors influencing demand:

• Investors’ income (Do they have enough money to buy)
• Earnings forecasts of the company (Will it grow?)
• Liquidity in the financial system (Is money flowing into the market?)
• Market confidence (Are people optimistic or pessimistic?)

What is supply and why does it also control prices

Supply refers to the quantity of goods or assets that sellers want to offer at various price levels. From another perspective, it is the selling force in the market.

Example: if bad news comes out, shareholders want to unload their shares. The number of sellers increases, and the price drops because there are many shares waiting for buyers.

Basic law of supply: When the price rises, the willingness to sell increases because sellers gain more profit. Conversely, when the price drops, sellers are less willing to sell.

Factors influencing supply:

• Production costs (Additional IPOs)
• Company policies (Share buybacks reducing supply or increasing capital)
• Future price expectations (If expecting prices to fall further, they won’t sell now)
• Overall market situation (Market sentiment and trends)

Equilibrium ( - The point where prices decide themselves

This is the charm of economics: when demand and supply meet at a certain point, they automatically create equilibrium.

Scenario 1: Price too high → sellers want to sell, but buyers reduce their willingness → excess supply → price falls back.

Scenario 2: Price too low → many buyers want to buy, but shares are scarce → excess demand → price rises back.

This equilibrium is not static. It constantly changes with news, economic factors, or company financials.

Real market example: what happens if demand exceeds supply

Suppose news comes out that a company’s profit skyrocketed beyond expectations:

1. Day 1: Investors see the good news and rush to buy. Demand )Demand( surges, and the price rises.

2. Day 2: Existing shareholders who see the rising price are happy to sell. )Supply enters(. The price stabilizes or continues to rise depending on demand.

3. Long-term: The market gradually adjusts the price to a level where buying and selling forces balance.

Conversely, if the news is bad:

• Investors want to sell )Supply surges(
• Demand is insufficient )Demand is low(
• Price drops

How to use demand-supply in trading

Traders have 2 ways to apply this concept:

) 1. Fundamental analysis View stock prices as a reflection of the company’s value. If profits increase, demand rises, and prices go up. If profits decline, supply enters, and prices fall.

2. Technical analysis

Look at price and trading volume ###Volume( to detect real buying and selling pressures:

Bullish signals )Demand Zone(:

• Prices make new highs repeatedly
• Green candles appear frequently )Close higher than open(
• Volume of buying exceeds selling

Bearish signals )Supply Zone(:

• Prices make new lows repeatedly
• Red candles appear frequently )Close lower than open(
• Volume of selling exceeds buying

Demand and Supply Zones: New trading techniques

This technique uses the principle of identifying points where demand or supply has exhausted and is about to change direction:

Example of trading DBR )Drop-Base-Rally(:

• Price drops sharply )Supply dominates(
• Price starts forming a base, indicating selling pressure has exhausted
• Price hits resistance and bounces -> buy signal

Example of trading RBD )Rally-Base-Drop(:

• Price rises rapidly )Demand dominates(
• Price starts forming a base, indicating buying pressure has exhausted
• Price breaks support and drops -> sell signal

Summary

Demand and supply are not just economic terms in textbooks; they are the real forces driving markets. Whether in stocks, crypto, or other assets, every time you see prices jumping or plunging, there are buying and selling forces colliding. Learning to read these forces is the first step to becoming a smarter investor.

Most importantly: theories are useful, but practicing with real price data every day will teach you to see the full picture. Start today.